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The German ZEW Economic Sentiment Index is based on a monthly survey of institutional investors and analysts and their views of the German economy. A reading that is higher than the market forecast is bullish for the euro.

Here are all the details, and 5 possible outcomes for EUR/USD.

Published on Tuesday at 9:00 GMT.

Indicator Background

German ZEW Economic Sentiment surveys financial experts for their assessment of the direction of the German economy in the next six months, based on economic data including inflation, exchange rates and the stock market. This makes the index an important indicator of the medium-term future of the German economy.

The indicator improved in the June reading, climbing from 36.4 points to 38.5 points. However,  the index  remains well   below the levels we saw early in 2013, when it was close to 50 points. The markets are expecting a higher reading this time around, with an estimate of 39.9 points. If the index can beat this prediction, the euro could get a boost as a result.

Sentiments and levels

The dollar bulls were scrambling for cover after  Bernanke’s dovish comments, but  Fed chief Bernanke didn’t really state  anything new  when he said  that  monetary policy would remain accommodative for now.  And what is accommodative policy? Not only infinite QE but also very low interest rates and some QE. It seems likely that if US numbers continue to improve, especially employment data, the Fed will again come under pressure to taper QE.

Regarding the euro, the  ECB still maintains a clear downside bias, and stated just last week that lower rates were a possibility, depending on the Eurozone economy.  More specifically, there are serious problems everywhere one turns on the continent:  German data has been hot and cold, Greece is straining under the bailout, and the Portuguese crisis isn’t resolved. France and Italy are looking sluggish, and Spain’s government could collapse. So, the overall sentiment is bearish on EUR/USD towards this release.

Technical levels, from top to bottom: 1.32, 1.3160, 1.31, 1.3050, 1.3000 and 1.2940.

5 Scenarios

  1. Within expectations: 37.0 to 43.0: In such a case, the Euro is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 43.1 to 46.0: An unexpected higher reading can send EUR/USD well above one resistance line.
  3. Well above expectations: Above 46.0: A  strong reading  would indicate improving confidence in the German economy. A second resistance line might be broken on such an outcome.
  4. Below expectations:  34.0 to 36.9: A sharper decrease than forecast could send the pair below  one support level.
  5. Well below expectations: Below 34.0: A  very weak release  could rattle the markets, and EUR/USD could break two or more support levels.

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